Buy
Sell
Share Name Share Symbol Market Type Share ISIN Share Description
PARITY GROUP PLC NEX:PTY.GB NEX Ordinary Share GB00B1235860
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 7.50p 7.00p 8.00p 7.50p 7.412p 7.50p 190 16:30:06
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
- - - - -

Parity Group PLC Final Results

16/04/2019 7:00am

UK Regulatory (RNS & others)


PARITY (NEX:PTY.GB)
Historical Stock Chart

3 Months : From Mar 2019 to Jun 2019

Click Here for more PARITY Charts.

TIDMPTY

RNS Number : 2676W

Parity Group PLC

16 April 2019

16 April 2019

PARITY GROUP PLC

FULL YEAR RESULTS FOR THE YEAR TO 31 DECEMBER 2018

Parity Group plc ("Parity" or the "Group"), the data and technology focussed professional services business, announces its full year results for the year ended 31 December 2018.

Financial Headlines:

   --     Group revenues(1) up by 2.7% to GBP86.1m (2017: GBP83.8m) 

-- Adjusted profit before tax(2) declined by 48.7% to GBP0.85m (2017: GBP1.66m) primarily due to non-renewal of large consultancy contract

   --     Continued positive cash flow from operations of GBP0.6m (2017: GBP3.0m) 
   --     Further reduction in net debt to GBP1.1m (2017: GBP1.6m) 
   1.     On a continuing basis 
   2.     Profit before tax and non-recurring items from continuing operations 

Strategic and Operational Headlines:

   --     Revenue growth strongest in lower margin business 
   --       Strong performance with our public sector framework contracts during 2018 
   --       Increasing repeat business from long standing clients 
   --       Wins in private sector complement historic government strengths 
   --     Changes to consulting business begin 
   --       Appointment of Antonio Acuna to lead consulting division 
   --       New projects in data analysis and management for private and public sector clients 
   --       Restructuring of consulting team to optimise margin and reflect client demand 
   --     Cross-selling between divisions 
   --       Clients buying support from both sides of the business - recruitment and consultancy 
   --     Disposal 
   --       Exit from loss-making, non-core activity Inition. 

John Conoley, Non-Executive Chairman of Parity Group, said:

"2018 was the year when Parity revisited its long-term strategy. We set in place the foundations for growth in a market that has continued to evolve. We invested in senior talent and marketing. Reorganising and reshaping of our proposition will build on our strengths as trusted partners with deep and lasting relationships that empower clients to make bold data-led business decisions."

"Trading remains in line with expectations and the Board's confidence in the refreshed strategy is reflected in its continuing investment. Alongside a strengthening of senior talent, we have the foundations for growth in the coming years."

Matthew Bayfield, Chief Executive, said:

"This has been a year of reflection and change for Parity."

"As client and market needs changed, we experienced real challenges that questioned our approach. We responded with a roadmap for a new operating model that includes new service lines, a clearer emphasis on consistent and integrated relationship management and a stronger brand and communication to the market. Our strengths in financial management have enabled us to reduce debt and continue to generate cash and, together with a positive initial response from clients to our new offer, this gives us confidence for the future."

For further information, contact:

 
  Matthew Bayfield, CEO 
   Roger Antony, GFD                     Parity Group    020 8543 
   David Beck, PR & Communications        plc             5353 
 Mike Coe                                               020 7220 
  Chris Savidge                         WH Ireland       1666 
 

This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of Parity Group plc. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) adverse changes to the current outlook for the UK IT recruitment and solutions market, (ii) adverse changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) pricing and product initiatives of competitors, (v) changes in technology or consumer demand, (vi) the termination or delay of key contracts and (vii) volatility in financial markets.

Chairman's Report

2018 - a year of strategic realignment for Parity

This year has been very significant for Parity.

After a period of consolidation and reflection we have embarked on a course for long term growth that will capitalise on our strengths and develop a proposition that meets client need.

Our experience has increasingly told us that we have two opportunities. We have a strong story to tell about how data is used by organisations which should bring us higher margin consulting projects. We are also seeing increasing success when introducing clients to the breadth of our services. The board decided that it is time for a more co-ordinated offer and structure.

Results

Revenue grew at 2.7% across the Group increasing to GBP86.1m for the full year (2017: GBP83.8m). The Group continues to be cash generative and has maintained strong working capital management with debtor days reduced to 18 days (2017: 20 days), resulting in a further reduction of net debt to GBP1.1m (2017: GBP1.6m), underpinning our solid platform for future investment and development of the Group strategy.

Despite this, our strong first-half was followed by a significant delay and subsequent non-renewal of a major project for our Consultancy Services business. This reversed the trend of growing contribution from this side of the business and prompted us to accelerate a restructuring which we had planned to manage more progressively.

Board changes and people

The existing management team had made consistent progress in simplifying the structure of the business and aligning services better to support our clients in the growth markets we had identified. The recruitment of Matthew Bayfield in May 2018 was another significant step in ensuring the development of services to meet the demand for data driven solutions. Every company is investing to exploit the opportunities available to make better decisions through the mining and deciphering of information. With his recognised industry expertise, Matthew has quickly been able to develop services that have been well received by our clients and are leading to further opportunities.

As announced in February 2019, Matthew Bayfield joined the Board on 5 February as Chief Executive Officer, replacing Alan Rommel. Subsequently, on 8 April, we announced that Alan Rommel had stepped down from his Board role as Chief Operating Officer in order to pursue other interests. The Board acknowledges and thanks Alan for his significant contribution and commitment to the Group over the last 25 years.

We are lucky in being supported by a strong team of committed professionals at every level of the business and see investment in skills as a key plank of our future plans.

Strategy

Having been greatly encouraged by the opportunities identified in higher-margin data consultancy services, the Board has restructured the Consultancy Services division to focus more closely on this market. In addition to the promotion of Matthew, we are investing significantly in senior talent to drive thought leadership and engage with clients at the earliest stages of their data policy development leading on to delivering their data projects.

Better alignment between our consulting and recruitment businesses offers Parity a competitive advantage as we widen the client base to which we offer the full portfolio of our services. Our aim is to drive further operating margin improvement and deliver consistent growth in earnings and sustainable shareholder value in the medium and long-term.

This will be supported by the forthcoming developments in marketing and branding which we have initiated for roll-out in 2019. Additionally, changes to our internal operating model will assure consistent quality in our relationship and account management whilst maintaining our strength in financial management.

Financing and dividend

Banking arrangements with PNC have been in place since 2010. PNC has confirmed internal credit approval to extend the facility for a further two years on improved terms. The renewal will result in a GBP10m facility with interest charged at 2.00% above base (previously 2.35%).

The Board is not proposing to declare a dividend at this time but will keep this policy under review.

Current trading and outlook

Trading in the current financial year remains in line with expectations. The Board remains confident in its strategy and continues to invest to improve the operational efficiencies in the core recruitment service offering, the alignment of the service offerings from both a sales and delivery capability, and the strengthening of the senior talent within the firm to deliver an improved trajectory through 2019 and beyond.

Chief Executive's statement

Since my appointment as Chief Executive two months ago I have spent considerable time with our clients. I have been seeking to better understand our clients' data and technology needs and to review our ability to fully service those needs. The explosion of data analytic software and the value potential that is created from a better understanding of customer behaviour is well known.

The new and ever-growing challenges facing corporates and government organisations in data have become:

   --     acquiring the human skills to interpret the vast quantity of data being generated; 

-- attracting the people who can adapt operating systems in light of learnings from that data; and

   --     inspire confident decision making based upon reliable data and advice. 

Parity, as a specialist in the people who know and understand the value of data, is ideally placed to benefit from this next stage in the data growth story.

Parity has great strengths in recruitment and resourcing and in providing our clients with data and technology experts who are focused on delivery. Alongside our resourcing business we have built a smaller but higher margin consultancy business that delivers data and technology solutions to a small number of large clients.

However, we have not been as successful as we would like in leveraging our strengths and skills in resourcing to help us to grow our consultancy business. Our operating model is set up to support a relatively low margin recruitment business which is very focussed on delivery but is less well suited to selling higher margin consultancy; the business has operated within silos and has failed to transfer clients between the two service lines at scale.

The new Parity business model

In future the Parity business model will change, we will have three distinct propositions to take to clients; recruitment, learning and development and consultancy, all delivered through a single account management team working to deliver a single P&L. They will be supported by a single and enhanced sales and marketing function.

The three service lines will complement each other and encourage cross referrals and integrated solutions, delivering what our clients have asked for, being the support of a collaborative partner, that enables confident decision making based on reliable data.

Recruitment

Our recruitment proposition represents the heritage of our business, it has an enviable list of blue-chip clients in both the public and private sector. Clients like the excellent level of service we provide and its specialism in the field of data and technology. However, the market for these services operates on relatively low margins, is increasingly commoditised and is highly price sensitive. We will continue to be active in this field but will increasingly focus on the higher value recruitment that fits alongside our other service lines of learning and development and consultancy.

Consultancy

We are also in the market offering data and technology consulting and whilst we have enjoyed some successes, we have also had challenges and they have largely been of our own making. We have lacked sufficient account management skills and are failing to fully capitalise on our proven knowledge of the data and IT markets. We regard this as a significant opportunity and are investing in senior management to lead this effort. We announced today that Antonio Acuna MBE, formerly Head of the UK Government's open data initiative data.gov.uk, has joined us to lead our consultancy services. Working more closely with the established account management teams in recruitment we will be able to offer integrated recruitment and advisory packages to help solve clients' need for effective data management and analysis.

Learning & Development

We will launch a new service line in learning and development. Clients who engage with us and buy our recruitment and advice services are also looking to develop their existing people. With our proven knowledge of the skills required of people in data and technology we are ideally placed to diagnose clients' learning and development needs. We will design and deliver programs to upskill our clients' existing people resources in data management and analysis, whilst identifying gaps that can be filled through recruitment as well as data and IT projects that require our consultancy service.

One Parity business

All three service offerings will operate as one business reported as such without divisional breakdowns. We will be completely re-engineering our sales and marketing function and are in the process of recruiting a new leader for this critical function. In the past we have tended to rely on our existing relationships and been reactive to clients' requests; in the future we will be much more proactive in leading thinking in the area of data management and analysis. With three integrated market propositions that are relevant to companies across all sectors and almost regardless of size there is a huge addressable market.

We will be relaunching the Parity brand in the very near future with a new more modern identity and clearer messaging. We have a large network of employees, consultants and people who we have placed within organisations all of whom can become ambassadors and advocates for the new Parity way of working.

Parity is a professional services business with unrivalled skills and expertise in a hugely important and fast-growing market, which gives us great confidence in our future prospects.

Operational and Financial Review

   --     An increase in revenue but weighted towards lower margin recruitment work 
   --     Delay and subsequent loss of the MoD account impacted operating profit substantially 
   --     Continued strong working capital management resulted in a decrease in net debt 
 
  Continuing Operations              2018        2017        Incr./(Decr.) 
                                      GBP000's    GBP000's    % 
----------------------------------  ----------  ----------  -------------- 
 Key Financials 
 Revenue                             86,112      83,815      2.7% 
 Adjusted profit before tax(1)       853         1,662       (48.7%) 
 Net debt                            (1,090)     (1,632)     (33.2%) 
----------------------------------  ----------  ----------  -------------- 
 Ratios 
 Adjusted PBT margin %               1.0%        2.0% 
 Net debt / Adjusted EBITDA ratio    0.8         0.7 
----------------------------------  ----------  ----------  -------------- 
 
   1      Adjusted profit before tax is defined as profit before tax and non-recurring items 

Despite growth in its revenues, the Group experienced a reduction in adjusted profit before tax during the year ended 31 December 2018. The decline in profit derived mainly from the mix impact of revenue growth in the lower margin Professionals division, and a reduction in both revenue and contribution from the Consultancy Services division. The trading challenges in the Consultancy Services division prompted a restructure of the division with the associated one-off costs treated as non-recurring items. The Group was cash generative during the year resulting in a further reduction to net debt.

Revenue for the year ended 31 December 2018 increased by 2.7% from GBP83.8m to GBP86.1m driven by growth in the Professionals division. The division's contractor volumes recovered from the impact of IR35 reforms introduced in the public sector in 2017. The trading issues in the Consultancy Services division led to a weaker revenue mix. Consequently, adjusted profit before tax fell by 48.7% from GBP1.66m to GBP0.85m with the Group adjusted PBT margin tightening from 2.0% to 1.0%. Non-recurring items incurred in the year were predominately related to restructuring and totalled GBP495,000. Profit before tax after deducting non-recurring items was GBP358,000. Net cash generated from operations was GBP604,000 enabling us to reduce net debt from GBP1.6m to GBP1.1m at the end of 2018, with the Net Debt/Adjusted EBITDA ratio at the end of year 0.8x (2017: 0.7x).

Divisional performance

 
                                  2018        2017        Incr./(Decr.) 
                                   GBP000's    GBP000's    % 
-------------------------------  ----------  ----------  -------------- 
 Revenue 
 Parity Professionals             84,025      80,036      5.0% 
 Parity Consultancy Services      8,496       9,543       (11.0%) 
 Less inter-segment revenue       (6,409)     (5,764)      - 
-------------------------------  ----------  ----------  -------------- 
 Group revenue                    86,112      83,815      2.7% 
-------------------------------  ----------  ----------  -------------- 
 
 Divisional contribution 
 Parity Professionals             2,314       2,307       0.3% 
 Parity Consultancy Services      320         1,148       (72.1%) 
-------------------------------  ----------  ----------  -------------- 
 Total divisional contribution    2,634       3,455       (23.8%) 
-------------------------------  ----------  ----------  -------------- 
 

Reconciliation of divisional contribution and adjusted EBITDA to operating profit from continuing operations

 
                                                2018       2017 
                                                 GBP'000    GBP'000 
---------------------------------------------  ---------  --------- 
 Divisional contribution                        2,634      3,455 
 Group costs                                    (1,093)    (1,045) 
 Share-based payment charges                    (129)      (68) 
---------------------------------------------  ---------  --------- 
 Adjusted EBITDA                                1,412      2,342 
 Depreciation and amortisation                  (194)      (286) 
 Operating profit before non-recurring 
  items                                         1,218      2,056 
 Non-recurring items (continuing operations)    (495)      - 
 Operating profit from continuing operations    723        2,056 
---------------------------------------------  ---------  --------- 
 
 

Divisional contribution is reconciled to the income statement as part of segmental information presented in note 2.

Parity Consultancy Services

During 2018 the Consultancy Services business was focused on delivering data and technology solutions to its clients. Whilst trading was in line with our expectations in the first half of the year, the division was impacted by challenges in the second half which resulted in a 72% drop in full year divisional contribution to GBP0.3m (2017: GBP1.1m). Nevertheless, we remain convinced by the opportunity that the data consultancy market provides to the Group and have invested in senior management and marketing during the year. The difficult second half prompted a restructuring of the division, to align the cost base towards the more profitable opportunities available to the Group.

The most significant challenge related to the long-standing MCOCS contract with the MoD. Whilst the division maintained the quality of its delivery to the client during the year, an expected extension in Q3 to the contract was delayed due to a protracted client decision-making process, and subsequently not renewed. As a result of the delay the division incurred losses associated with its fixed cost delivery base. To a lesser extent the division was also impacted in H2 by a reduction in spend for our Application Management Support services in comparison to previous years.

In Q4 the division acted to address its losses, taking the decision to restructure its delivery function. We have excluded further work on the MCOCS project from our financial projections, and right-sized our delivery model for Application Management Support. Inevitably this resulted in some redundancies. The associated one-off costs have been treated as non-recurring items.

Good progress has been made with other clients including the Education and Skills Funding Agency where we are supporting our client with its digital projects. Most pleasingly, we have seen early signs of success from the investments made to focus efforts on data consultancy services. These investments have been instrumental in winning work with a leading contract catering and facilities group.

Parity Professionals

Parity Professionals provides targeted recruitment of temporary and permanent professionals with the staff to deliver business change programmes. We supply a broad range of skills from project management through to the niche skills in digital, data and information security required to ensure our clients can deliver their projects.

Parity Professionals generated revenue growth of 5% at GBP84.0m (2017: GBP80.0m), building on a well-established client base in the Public Sector with 15 framework wins and over 100 new clients in the year. Over 50% of the new client wins were in the Private Sector including household names such as Primark, not-for profit organisations such as the British Standards Institute and a number of housing associations.

Revenue growth was supported by a higher number of new interim candidate placements in the period. Contractor volumes recovered from the impact of the IR35 reforms which were introduced in April 2017 and applied to contractors working at our public sector clients. At the end of 2018 the number of contractors on billing was 995 (end 2017: 940). The total margin value on new sales in the period grew by 8% compared to 2017, and this momentum has improved through the year, resulting in a forward order book at year end of GBP32.7m (2017: GBP27.5m). Revenue from permanent recruitment was broadly flat at GBP638,000 (2017: GBP657,000) partly due to supply side shortages, though average fee rates per placement increased significantly as we targeted more senior roles and niche skills in the digital and cyber security markets.

One challenge created by the IR35 reforms and affecting the divisions contribution is a higher contractor churn rate, partly due to the lure of roles in the Private Sector, where the reforms will not apply until 2020. The divisional contribution margin was also affected by the managed service win at Primark, with lower than average contractor gross margins initially, but with the opportunity to improve profitability in the future, by placing contractors that we have sourced.

We continue to deliver the service-wrap for the Public Sector FastStream Graduate intake and this contract has been extended through to September 2019, though it is expected that the client will in-house the service provision, TUPEing Parity staff from this point with no stranded costs to the business. Parity Professionals successfully retendered for G-Cloud 10 framework with the Crown Commercial Service and has been awarded a managed service for the provision of project and programme management services for the Scottish Government Digital Superfast Broadband programme underwriting our dominant position for trusted delivery on key Public Sector contracts.

After the year end we were informed that a significant framework contract for the placement of staff with the Scottish Government would not be renewed. Our incumbent contractors placed through the framework will continue their contracts until their assignments end but we will not be able to make any new placements. This will result in revenues from the framework contract gradually winding down over the next two financial years. While this legacy type of contract has been significant in revenue terms it has provided relatively low levels of margin, the loss of which will be largely offset by costs savings mainly related to serving this specific contract during the period of contract run off.

In the longer term the end of this contract will improve the Group's net margin performance albeit from a lower level of revenue, consistent with the longer term direction of travel for Parity.

Non-recurring items

Non-recurring items of GBP0.50m (2017: GBPnil) were incurred during the year, primarily as a result of restructuring the Consultancy Services division.

Taxation

The tax credit on continuing profit before tax was GBP63,000 (2017: tax credit of GBP534,000), mainly representing a deferred tax adjustment in respect of prior periods. Whilst the Consultancy Services division generated a lower contribution than the previous year, its outlook remains positive. Therefore, we continue to take a prudent view on the division's carried forward tax losses which remain unrecognised but will keep this under review.

The Group did not provide for corporation tax payable in 2018 due to the utilisation of Group relief and the availability of carried forward deductible timing differences and tax losses.

Discontinued operations

We disposed of the non-core Inition subsidiary in April 2018 for consideration of GBP0.2m and recorded a loss on disposal of GBP0.3m. Inition was held for sale at the start of the year and accordingly its results to the point of disposal are presented as discontinued. During the portion of 2018 that Inition was owned by the Group, it incurred an operating loss before tax of GBP0.3m (2017: GBP1.1m).

Earnings per share and dividend

The basic earnings per share from continuing operations were 0.41 pence (2017: 2.15 pence). The decrease stems from lower profitability and the deferred tax credit recognised in 2017.

The Board does not propose a dividend for 2018 (2017: nil). During the year the Board sought external advice in respect of the steps needed to restore a dividend. The Board suspended the exercise when it became clear that profits before tax would be lower than in 2017 but will keep the position under review.

Statement of Financial Position

Trade and other receivables

Trade and other receivables remained at a consistent level in comparison to the previous year at GBP12.0m (2017: GBP12.0m). Ordinarily we would expect the increased contractor volumes in the Professionals division to carry a higher working capital requirement. However, the working capital requirement has been offset by a further improvement in debtor collections in the Professionals division. Group debtor days, calculated on billings on a countback basis, decreased to a record low of 18 days (2017: 20 days).

Trade and other payables

Trade and other payables also remained at similar levels to the previous year at GBP8.3m (2017: GBP8.3m). At the year end, creditor days were 28 days (2017: 28 days).

Loans and borrowings

Loans and borrowings represent the Group's debt under the asset-based lending facility. This is a working capital facility and is consequently linked to the same cycle as the trade receivables. The asset-based lending facility with PNC Business Credit ("PNC"), a leading secured finance lender, allows for borrowing of up to GBP15m depending on the availability of appropriate assets as security. The current facility which has been in place since 2010 is in the final stages of being renewed on improved terms including a reduction in the interest rate to 2.00% above base rate from 2.35% previously. The terms of the agreement have been sanctioned by PNC's credit committee with just the legal paperwork to tie up to complete the renewal.

Cash flow and net debt

The Group generated positive net cash flows from operating activities of GBP0.6m (2017: GBP3.0m), driven by EBITDA and a positive working capital swing with a reduction in debtor days to 18 (2017: 20 days). The GBP0.6m cash generated was after cash flows of GBP0.4m outflow and GBP0.1m inflow in respect of non-recurring items and discontinued operations respectively.

As a result of the positive cash flow, net debt reduced to GBP1.1m (2017: GBP1.6m).

Defined benefit pension deficit

During the year the pension scheme was subject to a triennial actuarial review, the outcome of which is in the process of being agreed between the Trustees and the Group.

At the year end the deficit had increased to GBP1.9m (2017: GBP1.1m), primarily due to a fall in the value of the scheme's investments, reflecting weaker global equity markets.

Assets and liabilities held for sale

The assets and liabilities held for sale on the 2017 balance sheet related entirely to the Inition subsidiary which was disposed of in April 2018.

Consolidated Income Statement for the year ended 31 December 2018

 
 
                                            Before non- 
                                              recurring    Non-recurring 
                                                             items (note 
                                                                      5) 
                                                  items             2018        Total           Total 
                                                   2018          GBP'000         2018            2017 
                                   Notes        GBP'000                       GBP'000         GBP'000 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 Continuing operations 
  Revenue                           2,3          86,112                -       86,112          83,815 
 Employee benefit costs             4           (5,976)            (299)      (6,275)         (5,939) 
 Depreciation and amortisation      4             (194)                -        (194)           (286) 
 All other operating expenses       4          (78,724)            (196)     (78,920)        (75,534) 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 Total operating expenses                      (84,894)            (495)     (85,389)        (81,759) 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 Operating profit/(loss)                          1,218            (495)          723           2,056 
 Finance costs                      7             (365)                -        (365)           (394) 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 Profit/(loss) before 
  tax                                               853            (495)          358           1,662 
 Tax (charge)/credit                9              (16)               79           63             534 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 Profit/(loss) for the 
  year from continuing 
  operations                                        837            (416)          421           2,196 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 Discontinued operations 
  Loss from discontinued 
  operations after tax               8            (381)                -        (381)         (2,182) 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 Profit/(loss) for the 
  year attributable to 
  owners of the parent                              456            (416)           40              14 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 
 Earnings per share - Continuing operations 
 Basic earnings per share           10                                          0.41p           2.15p 
  Diluted earnings per 
   share                            10                                          0.41p           2.12p 
 Earnings per share - Continuing and discontinued operations 
 Basic earnings per share           10                                          0.04p           0.01p 
  Diluted earnings per 
   share                            10                                          0.04p           0.01p 
-------------------------------  -------  -------------  ---------------  -----------  -------------- 
 

Consolidated Statement of Comprehensive Income for the year ended 31 December 2018

 
                                                                  2018       2017 
                                                      Notes    GBP'000    GBP'000 
-------------------------------------------------  --------  ---------  --------- 
 Profit for the year                                                40         14 
 Other comprehensive income 
 Items that may be reclassified to profit or 
  loss 
 Exchange differences on translation of foreign 
  operations                                                       (3)       (39) 
 
 Items that will never be reclassified to profit 
  or loss 
 Remeasurement of defined benefit pension scheme               (1,005)        800 
 Deferred taxation on remeasurement of defined 
  pension scheme                                      12           171      (136) 
 
 Other comprehensive (expense)/income for the 
  year after tax                                                 (837)        625 
-------------------------------------------------  --------  ---------  --------- 
 Total comprehensive (expense)/income for the 
  year attributable to owners of the parent                      (797)        639 
-------------------------------------------------  --------  ---------  --------- 
 

Consolidated Statement of Changes in Equity for the year ended 31 December 2018

 
                                                     Share       Capital 
                              Share   Deferred     premium    redemption       Other    Retained 
                            capital     shares     reserve       reserve    reserves    earnings      Total 
                            GBP'000    GBP'000     GBP'000       GBP'000     GBP'000     GBP'000    GBP'000 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 At 1 January 2018            2,043          -      33,211        14,319      44,160    (86,544)      7,189 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 Issue of new ordinary 
  shares                         10          -          33             -           -           -         43 
 Share options - 
  value of employee 
  services                        -          -           -             -           -         129        129 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 Transactions with 
  owners                         10          -          33             -           -         129        172 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 Profit for the year              -          -           -             -           -          40         40 
 Exchange differences 
  on translation of 
  foreign operations              -          -           -             -           -         (3)        (3) 
 Remeasurement of 
  defined benefit 
  pension scheme                  -          -           -             -           -     (1,005)    (1,005) 
 Deferred taxation 
  on remeasurement 
  of defined pension 
  scheme taken directly 
  to equity                       -          -           -             -           -         171        171 
 Reallocation of 
  impairment charge               -          -           -             -     (9,600)       9,600          - 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 At 31 December 2018          2,053          -      33,244        14,319      34,560    (77,612)      6,564 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 
 
                                                     Share       Capital 
                              Share   Deferred     premium    redemption       Other    Retained 
                            capital     shares     reserve       reserve    reserves    earnings      Total 
                            GBP'000    GBP'000     GBP'000       GBP'000     GBP'000     GBP'000    GBP'000 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 At 1 January 2017            2,037     14,319      33,195             -      44,160    (87,251)      6,460 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 Issue of new ordinary 
  shares                          6          -          16             -           -           -         22 
 Share options - 
  value of employee 
  services                        -          -           -             -           -          68         68 
 Cancellation of 
  deferred shares                 -   (14,319)           -        14,319           -           -          - 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 Transactions with 
  owners                          6   (14,319)           -        14,319           -          68         90 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 Profit for the year              -          -           -             -           -          14         14 
 Exchange differences 
  on translation of 
  foreign operations              -          -           -             -           -        (39)       (39) 
 Remeasurement of 
  defined benefit 
  pension scheme                  -          -           -             -           -         800        800 
 Deferred taxation 
  on remeasurement 
  of defined pension 
  scheme taken directly 
  to equity                       -          -           -             -           -       (136)      (136) 
 At 31 December 2017          2,043          -      33,211        14,319      44,160    (86,544)      7,189 
------------------------  ---------  ---------  ----------  ------------  ----------  ----------  --------- 
 

Consolidated Statement of Financial Position as at 31 December 2018

 
                                                          2018       2017 
                                              Notes    GBP'000    GBP'000 
-----------------------------------------  --------  ---------  --------- 
 Assets 
  Non-current assets 
 Goodwill                                     11         4,594      4,594 
 Other intangible assets                                    86        227 
 Property, plant and equipment                              69         78 
 Deferred tax assets                          12         1,153        919 
 Total non-current assets                                5,902      5,818 
-----------------------------------------  --------  ---------  --------- 
 Current assets 
 Trade and other receivables                            12,018     12,033 
 Cash and cash equivalents                               5,829      4,968 
 Assets classified as held for sale                          -        791 
 Total current assets                                   17,847     17,792 
-----------------------------------------  --------  ---------  --------- 
 Total assets                                           23,749     23,610 
-----------------------------------------  --------  ---------  --------- 
 Liabilities 
  Current liabilities 
 Loans and borrowings                                  (6,919)    (6,592) 
 Trade and other payables                              (8,261)    (8,349) 
 Provisions                                               (43)          - 
 Liabilities classified as held for sale                     -      (395) 
 Total current liabilities                            (15,223)   (15,336) 
-----------------------------------------  --------  ---------  --------- 
 Non-current liabilities 
 Loans and borrowings                                        -        (8) 
 Provisions                                               (20)       (18) 
 Retirement benefit liability                          (1,942)    (1,059) 
 Total non-current liabilities                         (1,962)    (1,085) 
-----------------------------------------  --------             --------- 
 Total liabilities                                    (17,185)   (16,421) 
-----------------------------------------  --------  ---------  --------- 
 Net assets                                              6,564      7,189 
-----------------------------------------  --------  ---------  --------- 
 
 Shareholders' equity 
 Called up share capital                                 2,053      2,043 
 Share premium reserve                                  33,244     33,211 
 Capital redemption reserve                             14,319     14,319 
 Other reserves                                         34,560     44,160 
 Retained earnings                                    (77,612)   (86,544) 
-----------------------------------------  --------             --------- 
 Total shareholders' equity                              6,564    7,189 
-----------------------------------------  --------  ---------  --------- 
 
 

Consolidated Statement of Cash Flows for the year ended 31 December 2018

 
                                                                   2018       2017 
                                                       Notes    GBP'000    GBP'000 
----------------------------------------------------  ------  ---------  --------- 
 Cash flows from operating activities 
  Profit for the year                                                40         14 
 Adjustments for: 
 Net finance expense                                     7          365        394 
 Share-based payment expense                                        129         68 
 Income tax credit                                      8,9       (236)      (619) 
 Amortisation of intangible assets                                  165        341 
 Depreciation of property, plant and equipment                       53        106 
 Impairment of goodwill                                  8            -      1,165 
 Loss on write down of intangible assets                 8            -          3 
 Loss on disposal of subsidiary                          8          306          - 
                                                                    822      1,472 
 Working capital movements 
 Decrease in work in progress                                         -          3 
 Decrease in trade and other receivables                            204      2,619 
 Decrease in trade and other payables                             (141)      (910) 
 Increase in provisions                                              45          1 
 Payments to retirement benefit plan                              (326)      (184) 
----------------------------------------------------  ------  ---------  --------- 
 Net cash flows from operating activities                           604      3,001 
----------------------------------------------------  ------  ---------  --------- 
 
 Investing activities 
 Purchase of intangible assets                                     (14)        (5) 
 Purchase of property, plant and equipment                         (35)       (91) 
 Net proceeds from disposal of subsidiary                8          114          - 
----------------------------------------------------  ------  ---------  --------- 
 Net cash flows from/(used in) investing activities                  65       (96) 
----------------------------------------------------  ------  ---------  --------- 
 
 Financing activities 
 Issue of ordinary shares                                            43         22 
 Drawdown/(repayment) of finance facility                           330    (2,032) 
 Interest paid                                           7        (181)      (199) 
----------------------------------------------------  ------  ---------  --------- 
 Net cash flows from/(used in) financing activities                 192    (2,209) 
----------------------------------------------------  ------  ---------  --------- 
 
 Net increase in cash and cash equivalents                          861        696 
----------------------------------------------------  ------  ---------  --------- 
 Cash and cash equivalents at the beginning 
  of the year                                                     4,968      4,272 
----------------------------------------------------  ------  ---------  --------- 
 Cash and cash equivalents at the end of the 
  year                                                            5,829      4,968 
----------------------------------------------------  ------  ---------  --------- 
 
 
 

Notes to the audited preliminary results

   1          Accounting policies 

Basis of preparation

Parity Group plc (the "Company") is a company incorporated and domiciled in the UK.

The financial information set out in these audited preliminary results constitutes the Group's audited consolidated accounts for 2018 and 2017. The notes in these audited preliminary results have been extracted from the Group's audited consolidated accounts for the year ended 31 December 2018.

The financial information set out in these audited preliminary results has been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The policies have been consistently applied to all the years presented unless otherwise stated.

The Group has adopted IFRS 15 'Revenue from Contracts with Customers' effective 1 January 2018 and applied it retrospectively. The Group has assessed its contracts against principal vs agent considerations and determines that revenue of GBP2,049,000 (2017: GBPnil), relating to contracts where the Group acts as a managed service provider, falls under recognition as agent under IFRS 15 that would have fallen under recognition as principal under IAS 18. Accordingly, if IAS 18 still applied, revenue and operating expenses would both be higher by GBP2,049,000 (2017: GBPnil) compared to IFRS 15. These affected contracts however were not in place prior to 2018 therefore there is no impact to periods prior to 2018. The implementation of IFRS 15 did not have an impact on the timing or amount of revenue recognised by the Group on its other contracts.

The Group has adopted IFRS 9 'Financial Instruments' effective 1 January 2018 and applied transitional relief and opted not to restate prior periods. The implementation of IFRS 9 did not have a significant impact on the value or classification of the Group's financial assets and liabilities.

   2              Segmental information 

In accordance with IFRS 8 'Operating Segments' the Group's management structure, and the reporting of financial information to the Chief Operating Decision Maker (the Group Board), have been used as the basis to define reporting segments. The Group has two continuing defined cash generating units (see note 11) which form the basis of each operating segment. The components of each segment are described below.

The internal financial information prepared for the Group Board includes contribution at a segmental level, and the Group Board allocates resources on the basis of this information.

Segment contribution, defined as divisional revenue less attributable costs, profit before tax, and assets and liabilities are internally reported at a Group level.

The Group has two segments:

-- Parity Professionals - provides targeted recruitment of temporary and permanent professionals to support IT and business change programmes. Parity Professionals provides 90% (2017: 89%) of the continuing Group's revenues.

-- Parity Consultancy Services - provides business and IT consultancy services focusing on the provision of data solutions and delivery of IT projects. Parity Consultancy Services provides 10% (2017: 11%) of the continuing Group's revenues.

Group costs include Directors' salaries and costs relating to Group activities and are not allocated to reporting segments for internal reporting purposes.

The Group evaluates performance on the basis of contribution from operations before tax not including non-recurring items, such as restructuring costs.

Inter-segment sales are priced on the same basis as sales to external customers, with a discount applied to encourage the use of Group resources at a rate acceptable to the tax authorities. Inter-segment revenue in the year is a result of Parity Professionals selling IT recruitment services to Parity Consultancy Services.

 
                                                   Parity Consultancy           Before 
                                          Parity             Services    non-recurring   Non-recurring 
                                   Professionals                 2018            Items           Items      Total 
                                            2018              GBP'000             2018            2018       2018 
 Continuing operations                   GBP'000                               GBP'000         GBP'000    GBP'000 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 Revenue from external 
  customers                               77,616                8,496           86,112               -     86,112 
 Inter-segment revenue                     6,409                    -            6,409               -      6,409 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 Segment revenue                          84,025                8,496           92,521               -     92,521 
 Attributable costs                     (81,711)              (8,176)         (89,887)               -   (89,887) 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 Segment contribution                      2,314                  320            2,634               -      2,634 
 Group costs                                                                   (1,093)               -    (1,093) 
 Depreciation and amortisation                                                   (194)               -      (194) 
 Share-based payment                                                             (129)               -      (129) 
 Non-recurring items                                                                 -           (495)      (495) 
 Operating profit/(loss)                                                         1,218           (495)        723 
 Finance costs                                                                   (365)               -      (365) 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 Profit/(loss) before 
  tax                                                                              853           (495)        358 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 
                                                   Parity Consultancy           Before 
                                          Parity             Services    non-recurring   Non-recurring 
                                   Professionals                 2017            Items           Items      Total 
                                            2017              GBP'000             2017            2017       2017 
 Continuing operations                   GBP'000                               GBP'000         GBP'000    GBP'000 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 Revenue from external 
  customers                               74,272                9,543           83,815               -     83,815 
 Inter-segment revenue                     5,764                    -            5,764               -      5,764 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 Segment revenue                          80,036                9,543           89,579               -     89,579 
 Attributable costs                     (77,729)              (8,395)         (86,124)               -   (86,124) 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 Segment contribution                      2,307                1,148            3,455               -      3,455 
 Group costs                                                                   (1,045)               -    (1,045) 
 Depreciation and amortisation                                                   (286)               -      (286) 
 Share-based payment                                                              (68)               -       (68) 
 Non-recurring items                                                                 -               -          - 
 Operating profit                                                                2,056               -      2,056 
 Finance costs                                                                   (394)               -      (394) 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 Profit before tax                                                               1,662               -      1,662 
-------------------------------  ---------------  -------------------  ---------------  --------------  --------- 
 
                                          All segment assets and liabilities are based 
                                                                            in the UK. 
 
   3          Revenue 

All of the Group's revenue derives from contracts with customers. Trade receivables, amounts recoverable on contracts and accrued income arise from contracts with customers. Changes to the Group's contract assets are attributable solely to the satisfaction of performance obligations.

The Group's revenue from external customers disaggregated by pattern of revenue recognition is as follows:

 
                                                            Parity                           Parity 
                                             Parity    Consultancy            Parity    Consultancy 
                                      Professionals       Services     Professionals       Services 
                                               2018           2018              2017           2017 
   Continuing operations                    GBP'000        GBP'000           GBP'000        GBP'000 
---------------------------------  ----------------  -------------  ----------------  ------------- 
 Services transferred over 
  time                                       76,978          8,496            73,615          9,543 
  Services transferred at a 
   point in time                                638              -               657              - 
---------------------------------  ----------------  -------------  ----------------  ------------- 
 Revenue from external customers             77,616          8,496            74,272          9,543 
---------------------------------  ----------------  -------------  ----------------  ------------- 
 

The Group's revenue from external customers disaggregated by primary geographical market is as follows:

 
                                                            Parity                           Parity 
                                             Parity    Consultancy            Parity    Consultancy 
                                      Professionals       Services     Professionals       Services 
                                               2018           2018              2017           2017 
   Continuing operations                    GBP'000        GBP'000           GBP'000        GBP'000 
---------------------------------  ----------------  -------------  ----------------  ------------- 
 UK                                          76,033          8,496            74,272          9,543 
  Rest of EU                                  1,583              -                 -              - 
---------------------------------  ----------------  -------------  ----------------  ------------- 
 Revenue from external customers             77,616          8,496            74,272          9,543 
---------------------------------  ----------------  -------------  ----------------  ------------- 
 

72% (2017: 68%) or GBP56.0m (2017: GBP50.4m) of the Parity Professionals revenue from external customers was generated in the public sector. 83% (2017: 82%) or GBP7.0m (2017: GBP7.8m) of the Parity Consultancy Services revenue was generated in the public sector.

The largest single customer in Parity Professionals contributed revenue of 14% or GBP11.7m and was in the public sector (2017: 11% or GBP8.8m and in the public sector). The largest single customer in Parity Consultancy Services contributed revenue of 64% or GBP5.4m and was in the public sector (2017: 46% or GBP4.4m and in the public sector).

   4              Operating expenses 
 
 
                                                                                            2018       2017 
   Continuing operations                                                                 GBP'000    GBP'000 
-------------------------------------------------------------------------  ----  ----  ---------  --------- 
 Employee benefit costs 
  - wages and salaries                                                                     5,478      5,138 
  - social security costs                                                                    623        609 
  - other pension costs                                                                      174        192 
-------------------------------------------------------------------------------------  ---------  --------- 
                                                                                           6,275      5,939 
  -----------------------------------------------------------------------------------  ---------  --------- 
 Depreciation and amortisation 
 Amortisation of intangible assets - 
  software                                                                                   155        239 
 Depreciation of leased property, plant 
  and equipment                                                                               11          9 
  Depreciation of owned property, plant 
   and equipment                                                                              28         38 
-------------------------------------------------------------------------------------  ---------  --------- 
                                                                                             194        286 
  -----------------------------------------------------------------------------------  ---------  --------- 
 All other operating expenses 
 Contractor costs                                                                         76,067     73,088 
  Sub-contracted direct costs                                                                363        228 
 Operating lease rentals - plant and 
  machinery                                                                                    8         17 
                                                    - land and buildings                     661        659 
 Other occupancy costs                                                                       156         98 
  IT costs                                                                                   326        278 
 Net exchange gain                                                                           (6)          - 
 Equity settled share-based payment 
  charge                                                                                     129         68 
 Other operating costs                                                                     1,216      1,098 
-------------------------------------------------------------------------------------  ---------  --------- 
                                                                                          78,920     75,534 
  -----------------------------------------------------------------------------------  ---------  --------- 
 Total operating expenses                                                                 85,389     81,759 
-------------------------------------------------------------------------------------  ---------  --------- 
 
 

During the year the Group obtained the following services from the Group's auditors:

 
 
                                                Grant Thornton               KPMG LLP 
                                                    UK LLP 
                                                     2018       2017       2018       2017 
                                                  GBP'000    GBP'000    GBP'000    GBP'000 
--------------------------------------  -----------------  ---------  ---------  --------- 
 Audit of the Group, Company 
  and subsidiary financial statements                  65          -          -         77 
 
 Interim review                                         -          -          -          6 
 Tax compliance                                        14          -          -         27 
 Other                                                  -          -         20         26 
--------------------------------------  -----------------  ---------  ---------  --------- 
 Other services                                        14          -         20         59 
--------------------------------------  -----------------  ---------  ---------  --------- 
 Total fees                                            79          -         20        136 
--------------------------------------  -----------------  ---------  ---------  --------- 
 
 
 

All other services have been performed in the UK. 'Other' refers to services provided in relation to advice relating to the Retirement Benefit Plan, transaction costs and assistance provided with research and development tax credit applications.

   5            Non-recurring items 
 
                                               2018       2017 
   Continuing operations                    GBP'000    GBP'000 
--------------------------------------    ---------  --------- 
 Restructuring 
                                                279          - 
   *    Employee benefit costs 
                                                122          - 
   *    Other operating costs 
 Legal costs                                     74          - 
 Past service cost for defined benefit           20          - 
  pension scheme 
                                                495          - 
--------------------------------------    ---------  --------- 
 
 

Non-recurring items during 2018 in respect of continuing operations included:

-- Costs related to restructuring of Parity Consultancy Services to align to the Group's strategy of focusing on the data consultancy market. Costs include employee termination payments, fees for professional services and costs of changes in management structure

-- Legal costs for professional services fees in respect of one-off cases with no significant further related costs anticipated

-- Past service cost for the Group's defined benefit pension scheme in respect of GMP equalisation

There were no non-recurring items during 2017.

   6          Average staff numbers 
 
                                               2018      2017 
                                             Number    Number 
----------------------------------------   --------  -------- 
 Continuing operations 
 Professionals - United Kingdom(1)               86        85 
 Consultancy Services - United Kingdom, 
  including corporate office                     23        25 
                                                109       110 
 ----------------------------------------  --------  -------- 
 Discontinued operations 
 Consultancy Services(2)                         15        22 
-----------------------------------------  --------  -------- 
 
 

(1) Includes 20 (2017: 22) employees providing shared services across the Group

(2) Average for 4 months (2017: 12 months)

At 31 December 2018, the Group had 101 continuing employees (2017: 105).

   7         Finance costs 
 
                                          2018       2017 
                                       GBP'000    GBP'000 
---------------------------------    ---------  --------- 
 Finance costs 
 Interest expense on financial 
  liabilities                              181        199 
 Net finance costs in respect of 
  post-retirement benefits                 184        195 
-----------------------------------  ---------  --------- 
                                           365        394 
  ---------------------------------  ---------  --------- 
 
 

The interest expense on financial liabilities represents interest paid on the Group's asset-based financing facilities. A 1% increase in the base rate would have increased annual borrowing costs by approximately GBP37,000 (2017: GBP53,000).

   8          Discontinued operations 

In April 2018 the Group sold Inition Limited following the strategic decision made to place greater focus on the Group's core business. As such, Inition Limited's operating result for the current and comparative year, the loss on disposal and the impairment of goodwill associated with the Inition cash generating unit is presented as discontinued.

The loss on disposal of Inition Limited was determined as follows:

 
                                          2018       2017 
                                       GBP'000    GBP'000 
---------------------------------    ---------  --------- 
 Consideration                             200          - 
 Net assets disposed of 
 Intangible assets                          33          - 
 Property, plant and equipment              62          - 
 Cash and cash equivalents                  86          - 
 Trade and other receivables               695          - 
 Trade and other payables                (485)          - 
---------------------------------    ---------  --------- 
 Total net assets disposed of              391          - 
 
 Loss on disposal before disposal        (191)          - 
  expenses 
 Disposal expenses                       (115)          - 
---------------------------------    ---------  --------- 
 Loss on disposal of Inition             (306)          - 
  Limited 
---------------------------------    ---------  --------- 
 

Net proceeds received on disposal of Inition Limited were as follows:

 
                                       2018       2017 
                                    GBP'000    GBP'000 
------------------------------    ---------  --------- 
 Cash consideration received            200          - 
 Cash disposed of                      (86)          - 
------------------------------    ---------  --------- 
 Net proceeds from disposal of          114          - 
  Inition Limited 
------------------------------    ---------  --------- 
 

The post-tax result of discontinued operations was determined as follows:

 
                                      Note       2018       2017 
                                              GBP'000    GBP'000 
-----------------------------------  -----  ---------  --------- 
 Revenue                                          523      2,324 
 Depreciation and amortisation                   (24)      (161) 
 Loss on write down of intangible 
  assets                                            -        (3) 
 All other operating expenses                   (787)    (3,262) 
-----------------------------------  -----  ---------  --------- 
 Operating loss                                 (288)    (1,102) 
 Impairment of goodwill                             -    (1,165) 
 Loss on disposal of Inition                    (306)          - 
  Limited 
 Debtor insolvency dividend                        40          - 
-----------------------------------  -----  ---------  --------- 
 Loss from discontinued operations 
  before tax                                    (554)    (2,267) 
 Tax credit                                       173         85 
-----------------------------------  -----  ---------  --------- 
 Loss from discontinued operations 
  after tax                                     (381)    (2,182) 
-----------------------------------  -----  ---------  --------- 
 
 Basic loss per share                   10    (0.37p)    (2.14p) 
 Diluted loss per share                 10    (0.37p)    (2.14p) 
-----------------------------------  -----  ---------  --------- 
 

The discontinued operations operating loss relates entirely to Inition Limited. The debtor insolvency dividend of GBP40,000 (2017: GBPnil) represents a one-off payment received from the administrators of Atraxis AG and relates to a bad debt previously written off by a former Group subsidiary registered in Switzerland. The discontinued operations tax credit of GBP173,000 in 2018 relates to a research and development tax credit claimed by Inition Limited.

Cash flows from/(used in) discontinued operations are as follows:

 
                                                     2018       2017 
                                                  GBP'000    GBP'000 
----------------------------------------------  ---------  --------- 
 Net cash from/(used in) operating activities         105      (674) 
 Net cash used in investing activities                (5)       (38) 
----------------------------------------------  ---------  --------- 
 Net cash flows for the year from/(used 
  in) discontinued operations                         100      (712) 
----------------------------------------------  ---------  --------- 
 
 
   9          Taxation 
 
                                                             2018       2017 
                                                          GBP'000    GBP'000 
------------------------------------------  ----  ----  ---------  --------- 
 Current tax expense 
 Current tax on profit for the year                             -        112 
 Total current tax expense                                      -        112 
------------------------------------------------------  ---------  --------- 
 
   Deferred tax credit 
 Accelerated capital allowances                                15         68 
 Origination and reversal of other 
  temporary differences                                        72          - 
  Recognition of deferred tax previously 
   unprovided                                                   -      (675) 
  Adjustments in respect of prior periods                   (150)       (39) 
------------------------------------------------------  ---------  --------- 
 Total deferred tax credit                                   (63)      (646) 
------------------------------------------------------  ---------  --------- 
 
 Tax credit on continuing operations                         (63)      (534) 
------------------------------------------------------  ---------  --------- 
 
 

The tax credit on continuing operations excludes the tax credit from discontinued operations of GBP173,000 (2016: GBP85,000). This comprises a current tax credit of GBP173,000 (2017: GBP112,000) and a deferred tax expense of GBPnil (2017: GBP27,000). This has been included in loss from discontinued operations after tax (see note 8). The adjustment in respect of prior periods of GBP150,000 (2017: GBP39,000) largely relates to capital allowances that had been expected to be claimed that were subsequently not claimed.

There is no current tax payable by the Group for 2018 (2017: GBPnil).

The standard rate of corporation tax in the United Kingdom changed from 20% to 19% with effect from 1 April 2017 and remained at 19% during 2018. Accordingly, the Group's profits for this accounting period are subject to tax at a rate of 19% (2017: 19.25%). A reduction to 17% effective 1 April 2020 was substantively enacted on 15 September 2016. As such, the tax rate of 17% (2017: 17%) has been applied in calculating the UK deferred tax position of the Group.

The reasons for the difference between the actual tax credit for the year and the standard rate of corporation tax in the UK applied to profit for the year are as follows:

 
           2018       2017 
        GBP'000    GBP'000 
 
 
 Profit before tax from continuing operations                    358    1,662 
-----------------------------------------------------------  -------  ------- 
 Expected tax charge based on the standard 
  rate of UK 
 corporation tax of 19% (2017: 19.25%)                            68      320 
 Expenses not allowable for tax purposes                          29       10 
  Adjustments in respect of prior periods                      (150)     (39) 
  Utilisation of unprovided tax losses carried 
   forward                                                         -    (141) 
  Recognition of deferred tax asset previously 
   unprovided                                                      -    (675) 
  Other                                                         (10)      (9) 
-----------------------------------------------------------  -------  ------- 
 Tax credit on continuing operations                            (63)    (534) 
-----------------------------------------------------------  -------  ------- 
 
 

Tax on each component of other comprehensive income is as follows:

 
                                                        2018                              2017 
                                          Before                  After     Before                  After 
                                             tax         Tax        tax        tax         Tax        tax 
                                         GBP'000     GBP'000    GBP'000    GBP'000     GBP'000    GBP'000 
-------------------------------------  ---------  ----------  ---------  ---------  ----------  --------- 
 Exchange differences on translation 
  of foreign operations                      (3)           -        (3)       (39)           -       (39) 
 Remeasurement of defined benefit 
  pension scheme                         (1,005)         171      (834)        800       (136)        664 
-------------------------------------  ---------  ----------  ---------  ---------  ----------  --------- 
                                         (1,008)         171      (837)        761       (136)        625 
-------------------------------------  ---------  ----------  ---------  ---------  ----------  --------- 
 
   10           Earnings per ordinary share 

Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of fully paid ordinary shares in issue during the year.

Diluted earnings per share is calculated on the same basis as the basic earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares.

 
                                          Weighted                              Weighted 
                                           average                               average 
                                            number     Earnings/                  number     Earnings/ 
                                                of        (loss)                      of        (loss) 
                              Earnings/                             Earnings/ 
                                 (loss)     shares     per share       (loss)     shares     per share 
                                   2018       2018          2018         2017       2017          2017 
                                GBP'000       '000         Pence      GBP'000       '000         Pence 
--------------------------  -----------  ---------  ------------  -----------  ---------  ------------ 
 Continuing operations 
 Basic earnings per share           421    102,464          0.41        2,196    102,087          2.15 
 Effect of dilutive 
  options                             -      1,126             -            -      1,292             - 
 Diluted earnings per 
  share                             421    103,590          0.41        2,196    103,379          2.12 
 
 Discontinued operations 
 Basic loss per share             (381)    102,464        (0.37)      (2,182)    102,087        (2.14) 
 Effect of dilutive                   -          -             -            -          -             - 
 options 
 Diluted loss per share           (381)    102,464        (0.37)      (2,182)    102,087        (2.14) 
 
 Continuing and discontinued 
  operations 
 Basic earnings per share            40    102,464          0.04           14    102,087          0.01 
 Effect of dilutive 
  options                             -      1,126             -            -      1,292             - 
 Diluted earnings per 
  share                              40    103,590          0.04           14    103,379          0.01 
--------------------------  -----------  ---------  ------------  -----------  ---------  ------------ 
 
 
 

As at 31 December 2018 the number of ordinary shares in issue was 102,624,020 (2017: 102,124,020).

   11       Goodwill 

The carrying amount of goodwill is allocated to the Group's two separate continuing cash generating units (CGUs), being Parity Professionals and Parity Consultancy Services.

Carrying amounts are as follows:

 
                                                          Parity 
                                           Parity    Consultancy 
                                    Professionals       Services       Total 
                                          GBP'000        GBP'000     GBP'000 
-------------------------------  ----------------  -------------  ---------- 
 Carrying value 
 Balance at 1 January 2017 and 
  31 December 2017                          2,642          1,952       4,594 
-------------------------------  ----------------  -------------  ---------- 
 Balance at 1 January 2018 and 
  31 December 2018                          2,642          1,952       4,594 
-------------------------------  ----------------  -------------  ---------- 
 
 
 

Goodwill was tested for impairment in accordance with IAS 36 at the year end and no impairment charge was recognised.

The recoverable amounts of the CGUs are based on value in use calculations using the pre-tax cash flows based on budgets approved by management for 2019. Years from 2020 to 2022 are based on the budget for 2019 projected forward at expected growth rates. Years from 2023 onward assume no further growth. This approach is considered prudent based on current expectations of the 2019 long-term growth rate.

Major assumptions are as follows:

 
                              Parity Professionals   Parity Consultancy 
                                                 %             Services 
                                                                      % 
 2018 
   Discount rate                              13.0                 11.5 
   Forecast revenue growth 
    (years 1 to 4)                             2.0                 10.0 
   Operating margin 2019                       1.9                  6.1 
   Operating margin 2020                   2.0-2.3             7.8-10.5 
    onward 
 
 2017 
   Discount rate                              13.0                 11.5 
   Forecast revenue growth 
    (years 1 to 4)                             5.0                 10.0 
   Operating margin 2018                       2.6                 10.0 
   Operating margin 2019                   3.0-3.6            10.7-12.9 
    onward 
 

Discount rates are based on the Group's weighted average cost of capital adjusted for the specific risks of each cash generating unit.

Forecast revenue growth is expressed as the compound growth rate over the next 4 years from 2019 to 2022. Growth for the Parity Professionals CGU is based upon the long-term growth rate for the UK economy. Growth for the Parity Consultancy Services is assumed to be higher than the long-term growth rate due to the following factors:

   --     The CGU is the focal point of the Group's strategy and growth plans; 

-- The CGU is relatively small so higher rates of growth are achievable from a small base. For instance, the CGU achieved an average growth of 47% in the financial years 2016 and 2017;

-- In 2018 the CGU was hit by issue on a significant contract resulting in reduced year on year revenue for the CGU. The Directors expect this to be a one-off rather than a trend; and

-- New client wins in 2018 and an extension to the ESFA contract in 2019 help to underwrite the growth forecasts.

For all CGUs the rates are based on past experience of growth in revenues and future expectations of economic conditions. Operating margins are based on past experience.

A 10% change in any of the underlying assumptions used in the discounted cash flow forecasts would not lead to the carrying value of goodwill being in excess of their recoverable amount.

   12           Deferred tax 
 
 
                                                         2018      2017 
                                                      GBP'000   GBP'000 
---------------------------------------------------  --------  -------- 
 At 1 January                                             919       409 
 Recognised in other comprehensive income 
 Remeasurement of defined benefit pension scheme          171     (136) 
 Recognised in the income statement 
 Adjustments in relation to prior periods                 150        39 
 Capital allowances in excess of depreciation            (15)      (68) 
 Other short-term timing differences                     (72)         - 
 Recognition of deferred tax previously unprovided          -       675 
 At 31 December                                         1,153       919 
---------------------------------------------------  --------  -------- 
 
 

The deferred tax asset of GBP1,153,000 (2017: GBP919,000) comprises:

 
 
                                                     2018       2017 
                                                  GBP'000    GBP'000 
----------------------------------------------  ---------  --------- 
 Depreciation in excess of capital allowances         820        685 
 Short term and other timing differences                3         54 
 Retirement benefit liability                         330        180 
----------------------------------------------  ---------  --------- 
                                                    1,153        919 
----------------------------------------------  ---------  --------- 
 
 

A deferred tax asset for deductible temporary differences is not recognised unless it is more likely than not that there will be taxable profits in the foreseeable future against which the deferred tax asset can be utilised. At the balance sheet date, the Directors assessed the probability of future taxable profits being available against which Parity Consultancy Services could recognise a deferred tax asset for previously unrecognised deductible temporary differences. The review concluded that it is probable that future taxable profits will be available. As such, the Directors have recognised a deferred tax asset for all deductible temporary differences available to Parity Consultancy Services.

A deferred tax asset for unused tax losses carried forward is normally recognised on the same basis as for deductible temporary differences. However, the existence of the unused tax losses is itself strong evidence that future taxable profit may not be available. Therefore, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses only to the extent that there is convincing evidence that sufficient taxable profit will be available against which the unused tax losses can be utilised. At the balance sheet date, the Directors considered recognising a deferred tax asset for previously unrecognised unused tax losses carried forward by Parity Consultancy Services. The review concluded that given the division's history of relatively recent tax losses and the additional requirement of providing convincing evidence that sufficient taxable profit will be available, a prudent approach would be taken and deferred tax would remain unrecognised for tax losses carried forward by the division.

The Directors believe that the deferred tax asset recognised is recoverable based on the future earning potential of the Group and the individual cash generating divisions. The forecasts for Parity Professionals comfortably support the unwinding of the deferred tax asset held by this division of GBP404,000 (2017: GBP380,000) and the forecasts for Parity Consultancy Services comfortably support the unwinding of the deferred tax asset held by this division of GBP749,000 (2017: GBP539,000).

The deferred tax asset at 31 December 2018 has been calculated on the rate of 17% substantively enacted at the balance sheet date.

The movements in deferred tax assets during the period are shown below:

 
 
                                                (Charge)/credit               Credit to 
                                                             to     other comprehensive 
                                     Asset               income                  income 
                                      2018            statement                    2018 
                                   GBP'000                 2018                 GBP'000 
                                                        GBP'000 
------------------------------  ----------  -------------------  ---------------------- 
 Depreciation in excess of 
  capital allowances                   820                  135                       - 
 Other short-term timing 
  differences                            3                 (51)                       - 
 Retirement benefit liability          330                 (21)                     171 
------------------------------  ----------  -------------------  ---------------------- 
 At 31 December 2018                 1,153                   63                     171 
------------------------------  ----------  -------------------  ---------------------- 
 
                                                                              Charge to 
                                                      Credit to     other comprehensive 
                                     Asset     income statement                  income 
                                      2017                 2017                    2017 
                                   GBP'000              GBP'000                 GBP'000 
------------------------------  ----------  -------------------  ---------------------- 
 Depreciation in excess of 
  capital allowances                   685                  330                       - 
 Other short-term timing                54                    -                       - 
  differences 
 Retirement benefit liability          180                  316                   (136) 
 At 31 December 2017                   919                  646                   (136) 
------------------------------  ----------  -------------------  ---------------------- 
 
 
 

The Group has unrecognised carried forward tax losses of GBP30,187,000 (2017: GBP29,485,000). The Group has unrecognised capital losses carried forward of GBP282,068,000 (2017: GBP281,937,000). These losses may be carried forward indefinitely.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR EAPLSFFANEFF

(END) Dow Jones Newswires

April 16, 2019 02:00 ET (06:00 GMT)

1 Year PARITY Chart

1 Year PARITY Chart

1 Month PARITY Chart

1 Month PARITY Chart
Your Recent History
NEX
PTY.GB
PARITY
Register now to watch these stocks streaming on the ADVFN Monitor.

Monitor lets you view up to 110 of your favourite stocks at once and is completely free to use.

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

P: V:gb D:20190627 04:04:49